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MCQs Economics - Day 57
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MCQ’s - Economics Day 57 - By Ankit Agrawal
Transcript of MCQs Economics - Day 57
MCQ’s - EconomicsDay 57
- By Ankit Agrawal
1. Which of the following best describes Pigouvian tax?
A. Taxes which are optional in nature and those which an individual choose to pay voluntarily
B. Taxes which are necessary to keep sufficient funds necessary to meet the needs of Senior Citizens
C. Tax levied against private individuals or businesses for engaging in activities that create adverse side effects for society
D. None of the above
1. Which of the following best describes Pigouvian tax?
A. Taxes which are optional in nature and those which an individual choose to pay voluntarily
B. Taxes which are necessary to keep sufficient funds necessary to meet the needs of Senior Citizens
C. Tax levied against private individuals or businesses for engaging in activities that create adverse side effects for society
D. None of the above
• A Pigovian (Pigouvian) tax is a tax assessed against private individuals or businesses for engaging in activities that create adverse side effects for society.
• Adverse side effects are those costs that are not included as a part of the product's market price. These include environmental pollution, strains on public healthcare from the sale of tobacco products, and any other side effects that have an external, negative impact.
• Pigovian taxes were named after English economist, Arthur Pigou, a significant contributor to early externality theory.
2. In India, expenditure on poverty alleviation programmes is considered apart of:
a) Capital expenditure as it augments the human resources of Indiab) Revenue expenditure as it is largely a consumptive expenditurec) Non-tax expenditure as such programmes must be financed fromborrowingd) None of the above
2. In India, expenditure on poverty alleviation programmes is considered apart of:
a) Capital expenditure as it augments the human resources of Indiab) Revenue expenditure as it is largely a consumptive expenditurec) Non-tax expenditure as such programmes must be financed fromborrowingd) None of the above
• Today I am just finishing up questions on Fiscal Policy and taxation to ensure small topics are not missed out and in the meanwhile also a quick recap of the week that has gone by
• All expenditures incurred by the government are either of revenue kind or current kind or compulsive kind. The basic identity of such expenditures is that they are of consumptive kind and do not involve creation of productive assets.
• They are either used in running of a productive process or running a government.
• Some examples of revenue expenditure: • Interest payment by the government on the internal and external loans; • Salaries, Pension and Provident Fund paid by the government to government
employees; • Subsidies forwarded to all sectors by the government; • Law and order expenditures (i.e., police & paramilitary); • Expenditures on social services (includes all social sector expenditures as
education, health care, social security, poverty alleviation, etc.)
3. If the tax expenditure is high in an economy, What does it imply?
a) Efficiency of tax administration is very poorb) Taxation system has poor horizontal equityc) Revenue foregone on account of tax exemptions is highd) None of the above
3. If the tax expenditure is high in an economy, What does it imply?
a) Efficiency of tax administration is very poorb) Taxation system has poor horizontal equityc) Revenue foregone on account of tax exemptions is highd) None of the above
• If government didn’t give any tax exemptions, this deducted amount would have belonged to government itself. Though Tax Expenditure are not direct spending by government, the concept of tax expenditure is that, government is giving back money to achieve certain social goals, like strengthening housing sector or industrial sector. But in actual sense, Government is not collecting money to be re-distributed later, but gives away tax exemptions.
• There is significant divergence in India between the official rates of taxes and the actual or effective rate of taxation (which is a simple ‘ratio of tax revenue collected to the tax base’).
• This arises on account of the exemptions to the tax rate. The magnitude of revenue foregone (i.e., tax expenditure) is quite high
• This is called as high tax expenditure.
4. The Central Divisible Pool that accrues to states essentially consists of
a) Taxes collected by the Union governmentb) Statutory grants-in-aidc) Capital expenditure of the Union governmentd) All of the above
4. The Central Divisible Pool that accrues to states essentially consists of
a) Taxes collected by the Union governmentb) Statutory grants-in-aidc) Capital expenditure of the Union governmentd) All of the above
• Advising a formula to distribute the Union tax proceeds between Union and the States is the most important task of a Finance Commission, as the share of states in the net proceeds of Union taxes is the predominant channel of resource transfer from the Centre to states.
• Divisible Pool is that portion of gross tax revenue which is distributed between the Centre and the States. The divisible pool consists of all taxes, except surcharges and cess levied for specific purpose, net of collection charges.
• As per the Article 275, the Finance Commission recommends the principles as well as the quantum of grants to those states which are in need of assistance
5. A progressive and a regressive taxation system is differentiated on the basis of:
a) Potential for revenue collectionb) Equity in taxationc) Impact of taxation on industrial growthd) Sustainability and robustness of taxation system
5. A progressive and a regressive taxation system is differentiated on the basis of:
a) Potential for revenue collectionb) Equity in taxationc) Impact of taxation on industrial growthd) Sustainability and robustness of taxation system
• A progressive tax is defined as a tax whose rate increases as the payer's income increases. That is, individuals who earn high incomes have a greater proportion of their incomes taken to pay the tax.
• A regressive tax, on the other hand, is one whose rate increases as the payer‘s income decreases. Particular taxes can also be classified as regressive or progressive. For e.g. consumption taxes are called as regressive, as rich spend less (and hence pay less taxes) on consumption goods as a proportion of their income.
• We have done a variation of such a question earlier wherein we discussed how indirect taxes are regressive as they affect the poor more than the rich. This is a revision of similar question with usage of the term Equity
6. An economy with low tax buoyancy is most likely to have
1. Greater tax collections with higher economic growth2. Higher contribution of tax receipts to revenue receipts
Which of the above is/are correct?a) 1 onlyb) 2 onlyc) Both 1 and 2d) Neither 1 nor 2
6. An economy with low tax buoyancy is most likely to have
1. Greater tax collections with higher economic growth2. Higher contribution of tax receipts to revenue receipts
Which of the above is/are correct?a) 1 onlyb) 2 onlyc) Both 1 and 2d) Neither 1 nor 2
• Both would have happened in case of High Tax Buoyancy
• Tax buoyancy refers to the response of tax collections with highereconomic growth. If tax buoyancy is good, and suppose economygrows rapidly, the tax collections of government will improve, for e.g.due to higher corporate tax.
• Further, please also note that high tax buoyancy does not necessarilylead to higher share of tax revenue in revenue receipts because itdoes not take into account the share of Non-tax revenues which maygrow higher than tax revenues despite high buoyancy
7. Consider the following about Goods and Services Network (GSTN).
1. It is a Government owned company as Central and State governments jointly own the majority stake in the company.2. It will provide IT infrastructure for implementation of the Goods and Services Tax (GST).
Which of the above is/are correct?a) 1 onlyb) 2 onlyc) Both 1 and 2d) Neither 1 nor 2
7. Consider the following about Goods and Services Network (GSTN).
1. It is a Government owned company as Central and State governmentsjointly own the majority stake in the company.2. It will provide IT infrastructure for implementation of the Goods andServices Tax (GST).
Which of the above is/are correct?a) 1 onlyb) 2 onlyc) Both 1 and 2d) Neither 1 nor 2
• Context: Static portion of GST
• Goods and Services Tax Network (GSTN) is a Section 8 (under new companies Act, not for profit companies are governed under section 8), non-Government, private limited company.
• It was incorporated on March 28, 2013. The Government of India holds 24.5% equity in GSTN and all States of the Indian Union, including NCT of Delhi and Puducherry, and the Empowered Committee of State Finance Ministers (EC), together hold another 24.5%.
• Balance 51% equity is with non-Government financial institutions.
• The Company has been set up primarily to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Services Tax (GST).
• Read more: https://www.gstn.org.in/about-us/
8. Consider the following about people paying taxes in India:
A. In 16 years between 2002-03 and 2018-19, the number of individuals who filed tax returns grew 22%
B. In the same period, the number of people who paid income tax rose by only 62%
Which of the above is correct?1. A only2. B only3. Both A and B4. Neither A nor B
8. Consider the following about people paying taxes in India:
A. In 16 years between 2002-03 and 2018-19, the number of individuals who filed tax returns grew 22%
B. In the same period, the number of people who paid income tax rose by only 62%
Which of the above is correct?1. A only2. B only3. Both A and B4. Neither A nor B
• Both the statements have been reversed
• In 16 years between 2002-03 and 2018-19, the number of individuals who filed tax returns grew 62%, but the number of people who paid income tax rose by only 22%. The government’s attempt to bring more people into the tax administration’s net has been successful, but a rising percentage of those filing returns are able to prove they have no taxable income
• Go through the informative article: https://economictimes.indiatimes.com/wealth/tax/budget-2020-the-deceptive-rise-in-indias-income-tax-base/articleshow/73868046.cms?from=mdr
9. Consider the following about Direct Tax Code:
A. Direct Tax Code is a major reform in the tax system where the government aims at simplifying the tax laws and regulations into a single legislation
B. The government published a discussion paper on Direct Tax Code in 2009 and issued the Direct Tax Code (DTC) bill in parliament in 2010
Which of the above is correct?1. A only2. B only3. Both A and B4. Neither A nor B
9. Consider the following about Direct Tax Code:
A. Direct Tax Code is a major reform in the tax system where the government aims at simplifying the tax laws and regulations into a single legislation
B. The government published a discussion paper on Direct Tax Code in 2009 and issued the Direct Tax Code (DTC) bill in parliament in 2010
Which of the above is correct?1. A only2. B only3. Both A and B4. Neither A nor B
• Both the statements are correct.
• Read the PRS summary: https://www.prsindia.org/billtrack/direct-taxes-code-bill-2010-1268
• Read the summary of DTC: https://byjus.com/free-ias-prep/direct-tax-code/
10. Which of the following best describes General Anti-Avoidance Rules(GAAR):
A) Methods adopted by countries to avoid WTO sanction by imposingpenalties after giving tax waiver
B) Tools to check monitor how countries give excessive protection todomestic industries
C) Tool for checking aggressive tax planning especially that transactionwhich is entered into with the objective of avoiding tax
D) None of the above
10. Which of the following best describes General Anti-Avoidance Rules (GAAR):
A) Methods adopted by countries to avoid WTO sanction by imposing penalties after giving tax waiver
B) Tools to check monitor how countries give excessive protection to domestic industries
C) Tool for checking aggressive tax planning especially that transaction which is entered into with the objective of avoiding tax
D) None of the above
• General Anti-Avoidance Rule is a set of rules or framework which helps the revenue authorities decide about whether a particular transaction has commercial substance or not. If not, then it is not a genuine transaction and then the tax liability associated with it is decided.
• It is a set of rules that helps tax authorities decide whether a commercial entity has entered into an arrangement with another entity or its subsidiary to avoid paying taxes to the government. This is done by taking advantages of loopholes existing in present tax structure.
• Tax avoidance has been recognised as an area of concern for long. This is evident from the fact that countries have been amending their tax regimes to include anti tax avoidance provisions. India sought to strengthen its position through the General Anti-Avoidance Rules (GAAR) effective April 1, 2017.
• Read more: https://www.jagranjosh.com/general-knowledge/general-anti-avoidance-rules-gaar-principles-implications-and-its-procedure-1456835553-1
MCQ’s - EconomicsDay 57
- By Ankit Agrawal
